In addition to the economic slowdown, the continued housing crisis, the endless turmoil in Europe and the deceleration in China and India, we are moving closer to the period where the so-called 'fiscal cliff' will become more of a threat to the market.The fiscal cliff refers to the near-simultaneous January 2013 expiration of the Bush tax cuts, the payroll tax cuts, emergency unemployment benefits and the sequester established in last summer's debt limit agreement.Various estimates have indicated that the hit to GDP could be as high as 4%.Many on Wall Street dismiss these concerns on the grounds that Congress and the administration will simply extend everything and, once again, 'kick the can down the road'.That may eventually happen, but it won't be easy.

Various members of the Federal Reserve Board, including the Chairman, have been concerned enough to make their worries publically known.Bernanke, at his last press conference, said that the size of the fiscal cliff was so large that "I think there's absolutely no chance that the Federal Reserve could or would have any ability whatsoever to offset the effect on the economy".

Chicago Fed president Charles Evans added that "The cliff at the end of this year is just that writ large. Whether or not calm heads will prevail and avoid this or do something useful, you know that's as big an uncertainty as I can imagine anybody facing."Atlanta Fed president Dennis Lockhart stated "Congress and the administration understand that the perception is growing that if a transition isn't engineered that works well, that you're going to end up with a lot of Mojo taken out of the economy in a very brief period of time."

The prevalent Wall Street take seems to be that Congress and the administration will settle the matter in some way or at least extend the period of expiration.Although that may turn out to be the case, that is certainly not the lesson of the last four years, particularly 2011, when Congress held the administration hostage to the possibility of a U.S. default on its debt during negotiations over the debt ceiling.If anything is done, it is highly unlikely to happen before the elections, and, as usual in these cases, will not be settled until the last possible minute, or even beyond.The looming battle, likely to be nasty, is almost certain to upset the market, particularly with so many other factors looking negative at the same time.

In any event, it seems to us that the three-year cyclical bull market is in the process of topping out, and that the secular bear market will resume.At today's close the S&P 500 was at the same level as February 16th of this year and about 12% below the peak reached more than 12 years ago in early 2000.This year's top was at 1422 on April 2nd.The number of Daily new NYSE highs is diminishing on every rally, and a lot of the speculative leaders of the last two or three years are collapsing.